Questions and Answers of International Accounting

Referring to Exhibit 1-6, which geographic region of the world, the Americas, Asia-Pacific, or Europe-Africa-Middle East is experiencing the most activity in foreign listings? Do you expect this
Refer to Exhibit 1-8, which lists factors relevant for choosing an overseas market for listing or raising capital. Which factors might have been relevant in E-centives’ decision to raise capital
Why do you believe E-centives chose not to raise public equity in the United States? What are the potential drawbacks related to E-centives’ decision not to raise capital in the U.S. public markets?
What are the advantages and disadvantages to E-centives of using U.S. GAAP?
Should the SWX Swiss Exchange require E-centives to prepare its financial statements using Swiss accounting standards?
Learn more about the New Market at the SWX Swiss Exchange’s Web site (http://www.swx.com). What are the listing requirements for the New Market? What are the financial reporting requirements?Does
Describe the problems characterized in this case.
What are the likely causes of these problems?
What are consequences of these problems for investors, Czech companies, and the Prague Stock Exchange?
Outline a program of changes needed to correct the problems identified.
Document the effects of the GAAP differences in the 20F by doing the following:a. For the current year, calculate the percentage change for net income and for total shareholders’ equity indicated
Should a U.S. reader of non-U.S.financial statements find this SECmandated reconciliation useful?
Based on your analysis of the sanofi-aventis 2006 limited restatement, do you support the SEC’s decision to exempt companies using IFRS from the reconciliation requirement? Why or why not?
Document the effects of the GAAP differences in the 20F by doing the following:a. For the current year, calculate the percentage change for net income and for total shareholders’ equity indicated
Should a U.S. reader of non-U.S.financial statements find this SECmandated reconciliation useful?
A 100 percent–owned foreign subsidiary’s trial balance consists of the accounts listed as follows. Which exchange rate—current, historical, or average—would be used to translate these
Go to the Web sites of the International Accounting Standards Board (www.iasb.org) and the U.S.Financial Accounting Standards Board (www.fasb.org). Compare and contrast the two boards in terms of
Why is so much attention paid to convergence between International Financial Reporting Standards(IFRS) and U.S. GAAP and not to convergence between IFRS and other national accounting standards?What
U.S. companies must use U.S.GAAP in their financial statements, not IFRS. Why should U.S. accountants, analysts, and others involved in financial reporting need to know about IFRS?
Will the IASB and FASB eventually merge, or will they remain separate accounting standard-setting bodies?Why do you say so?
Exhibit 8-3 identifies current IASB standards and their respective titles.Required: Using information on the IASB Web site (www.iasb.org) or other available information, prepare an updated list of
The IASB Web site (www.iasb.org) summarizes each of the current International Financial Reporting Standards.Required: Answer each of the following questions.a. In measuring inventories at the lower
However, by the consolidation date, the Saudi Arabian riyal depreciates such that the new spot rate is$1.00 = SAR4.125.Required:a. Assuming no transactions took place before consolidation, what would
On December 15, MSC Corporation acquires its first foreign affiliate by acquiring 100 percent of the net assets of the Armaselah Oil Company based in Saudi Arabia for 930,000,000 Saudi Arabian
No transactions occur during the year.Required:a. Calculate total assets reported by Company A and Company B at the beginning and at the end of the year. Which company has a gain and which has a loss
Company A is headquartered in Country A and reports in the currency unit of Country A, the Apeso. Company B is headquartered in Country B and reports in the currency unit of Country B, the Bol.
Based on the arguments presented, what do you think should be the functional currency in this case?
Your company has just decided to purchase 50 percent of its inverntory from China and purchases will be invoiced in Chinese yuan.What four processes do you need to consider in designing a foreign
WOTS-UP analysis fails to identify a best strategy. Refer to Exhibit 10-1 and examine the strategies Daimler Benz identified in its two-by-two matrix. What other strategies would you have considered?
Foreign exchange rates are used to establish budgets and track actual performance. Of the various exchange rate combinations mentioned in this chapter, which do you favor? Why? Is your view the same
State the unique difficulties involved in designing and implementing performance evaluation systems in multinational companies.
Refer to Exhibit 10-7 which presents the methodology for analyzing exchange rate variances. Describe in your own words what this methodology accomplishes.
As an employee on the financial staff of Multinational Enterprises, you are assigned to a three-person team that is assigned to examine the financial feasibility of establishing a wholly owned
Companies must decide whose rate of return (i.e., local vs. parent currency returns) to use when evaluating foreign direct investment opportunities.Discuss the internal reporting dimensions of this
Explain the difference between a standard costing system and the Kaizen costing system popularized in Japan.
This chapter identifies four dimensions of the strategic planning process. How does Daihatsu’s management accounting system, described in this chapter, conform with that process?
Which approach to performance evaluation do you support and why?
Critically evaluate the strengths and weaknesses of each company’s approach to the performance evaluation of its foreign managers as it relates to the problem of fluctuating currency values.
Compare GE’s approach to performance evaluation with that of ICI (mentioned in the chapter).
Ninsuvaan Corporation, a U.S. subsidiary in Bangkok, Thailand, begins and ends its calendar year with an inventory balance of BHT500 million. The dollar/baht exchange rate on January 1 was $0.02 =
Majikstan Enterprises has equipment on its books that it acquired at the start of 2009 . The equipment is being depreciated in straight-line fashion over a 10-year period and has no salvage value.
In addition to the information provided there, assume that Mexico’s construction cost index increased by 80 percent during the year, while the price of vacant land adjacent to Sobrero
Revisit Sobrero Corporation in Exercise
Using the information provided in Exercise 2.Calculate Majikstan Enterprises’ net monetary gain or loss in local currency for 2011 based on the following general price-level information.12/31/10
What revised actions/policies would you recommend based on inflationadjusted figures?
Is management correct in stating that by translating their financial reports into dollars they “automatically approximate the impact of inflation”?
Comment on International Cosmetics’policies on the basis of “as reported” earnings.
Corporate social responsibility (CSR), as practiced by business, means many different things.Consider the following: “At one end of the broad span of CSR lie corporate policies that any wellrun
Does Lafarge voluntarily report any information beyond the requirements of IFRS 8?
Exhibit 5-1 presents the business-segment and geographic-segment information of Lafarge, a French company that uses International Financial Reporting Standards (IFRS) in its consolidated financial
The Outlook section in Daimler’s 2008 annual report may be found at http://ar2008.daimler.com/daimler/annual/2008/gb/English/pdf/04_DAI_AR2008_Management-Report.pdf(pp. 82–87).Required: Provide
Describe the environmental disclosures that O.J. should recommend his company make.
How closely do Roche’s environmental disclosures match the GRI recommendations (see Exhibit 5-3)?What are the areas of nondisclosure?
Obtain the G3 sustainability reporting guidelines of the Global Reporting Initiative (GRI, www.globalreporting.org). List the environmental performance indicators that the GRI recommends for
Discuss why financial statement users find environmental disclosures informative.
Accounting measurement and disclosure practices are improving(from an investor-protection viewpoint) in many emergingmarket economies. What are some of the recent improvements in these areas in
Discuss characteristics or features that predict relatively high levels of disclosure in Mexico.
Discuss at least five characteristics that predict relatively low disclosure levels in Mexico. Your response should be based on a review of the material presented in Chapters 2 and 4 and this
Are investors and analysts better served by rules-based or principles-based accounting standards?Why do you say so?
What needs to change in the United States to make principles-based standards effective?
Why has U.S. GAAP evolved into a rules-based approach? Would principles-based standards be effective in the United States? Why or why not?
What is the difference between rules-based and principles-based accounting standards, and what are the advantages and disadvantages of each?
Outline a plan of reforms necessary to achieve stock market development in China.
How likely is China to develop a stock market with fair trading?Why do you say so?
How do these conditions compare to the situation in China?
Describe the conditions necessary to develop a stock market in an emerging economy.
What is the relevance of Volkswagen’s adoption of IAS to the classifications studied in this chapter?
What differences between the accounting requirements in the HGB and IAS are highlighted in Volkswagen’s disclosure? Are the German requirements consistent with your characterizations in requirement
Based on the information provided in the chapter, describe the basic features of German accounting at the time Volkswagen adopted IAS.What developmental factors cause these features?
Some observers contend that financial reporting is becoming more and more alike among “world-class”companies—the world’s largest multinational corporations—and especially those listed on
Do you agree with Cairns’s assertion that classifications of accounting are simplistic and of little relevance in today’s world? Are attempts to classify accounting futile and outmoded? Why or
Many countries permit or require their domestic listed companies to use International Financial Reporting Standards (IFRS) in their consolidated financial statements for investor reporting.Required:
Consider the following countries: (1) Belgium,(2) China, (3) the Czech Republic, (4) Gambia,(5) India, (6) Mexico, (7) Senegal, and(8) Taiwan.Required: Where would they be classified based on legal
The details in Figure 16.9 relate to D Co. Using that information and appropriate ratios, prepare a financial report on the company.The opening inventory value figures were :135,000 20X1 actual and
The process of expressing a foreign subsidiary’s balance sheet in its parent’s currency is called:A. Currency translation.B. Currency change.C. Currency conversion.D. Currency swap.
A loan is made to a company of $20,000, which is equal to :10,000 at the date of the loan during year 1. The loan is legally denominated in dollars. At the end of year 1, the loan is translated as
Home Inc. (a US company) has a wholly-owned subsidiary, S, which it acquired on 1 January X0. The balance sheets of S as at 1 January X0 and 31 December X0 are as set out in Figure 15.1 in foreign
An entity’s functional currency is:A. The currency of its parent’s country.B. The currency of its own country.C. The currency in which the financial statements are presented.D. The currency of
Under IFRS, unsettled gains on foreign monetary balances in an entity’s balance sheet should be:A. Taken to profit or loss immediately.B. Taken to profit or loss when realized.C. Taken to profit or
Entity X based in one country (currency $) bought goods from Entity Y in another country (currency :) for :300,000 on 1 May 20X1. The spot rate on that date was $1 =:1. As at 31 December 20X1, the
‘The variety of possible methods of foreign currency translation, and the different ways of treating gains arising, show that adequate harmonization for international comparison purposes is a long
The stated accounting policy treatment for foreign currency translation for SKF, a Swedish company, before it adopted IFRS was as follows:Translation of foreign financial statements The current rate
For a company with no preference shares, ‘earnings’ is the:A. Sales figure.B. Profit before tax.C. Profit after tax.D. Profit after tax and after dividends.
One of Hope Ltd’s customers has become insolvent. As a result the amount owed to Hope Ltd has become a ‘bad debt’. Which of the following is the consequence?A. Hope Ltd’s current ratio has
Repeat Exercise 1.4 from Chapter 1. Do you think that users know what to ask for from their accountant or financial adviser?Data from Repeat Exercise 1.4Do you think that users know what to ask for
Saxe-Coburg & Gotha Inc. increased its borrowings in order to buy a non-current asset. The complete effect on the balance sheet would be:A. Increase in assets and an increase in shareholders’
Cross-sectional analysis (comparisons between different businesses over the same period) and trend analysis (comparisons of the same business over different periods) both suffer from significant
‘Financial ratios are only as good as the accounting information from which they are calculated’. Discuss.
Bakshi Ltd has a current ratio of 2.0 and an acid test ratio of 1.0. If some current liabilities are paid off using cash, what would be the effect on these ratios?Current ratio Acid test ratio A.
Under IFRS, income statements are required to show:A. Extraordinary items.B. Unusual items.C. Exceptional items.D. None of the above.
Set out in Figure 16.10 are summarized balance sheets and income statements for F Co. for 20X1 and 20X2. You are required to:Figure 16.10a. prepare a table of ratios, covering all aspects of
‘Earnings’ is calculated deducting:A. Dividends on ordinary shares.B. Dividends on preference shares.C. Tax expense.D. Interest expense.
The ‘per share’ element of the EPS calculation includes:A. All shares.B. The average number of ordinary shares outstanding during the year.C. The number of ordinary shares outstanding at the end
The dividend yield is the:A. Dividends paid per ordinary share.B. The proportion of the return in one year on a share.C. The profit per share.D. The dividend on a share as a proportion of the share
Athens Ltd is a new hairdressing business into which the owner, Mr George, invests €40,000 on 1 January, when business commences. During the first month the following transactions occur:1. Fittings
The best case study of all is probably the real-world situation. This allows you to:■ choose situations that are topical;■ choose countries that you are both knowledgeable about and interested
Beijing Ltd runs a small hotel that commenced trading on 1 March. The following transactions occurred during the month of March:1 March Share capital of €50,000 was invested by the owners who also
The following is the trial balance of Cadiz Ltd as at 31 December.You also know that the inventory at 31 December is €380,000.You are required to:■ prepare an income statement for the year ended
The following balances are taken from the books of Dublin Ltd at 31 December:The inventory at 31 December is €500,000.You are required to:■ prepare an income statement for the year ended 31
Electricity bills amounting to €4,500 were paid by Edinburgh Ltd during the year ended 31 December 20X7. All of these bills relate to the year ended 31 December 20X7. A bill of:1,500 was received

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